BMO Nesbitt Burns Offers Tips on How to Save on Taxes Paid
- 63 per cent of Canadians unfamiliar with how dividend income is
taxed; 58 per cent unfamiliar on how capital gains are taxed
- Strategies involving charitable donations, RRSPs, and TFSAs are
among the many ways Canadians can reduce their overall tax bill
TORONTO, ONTARIO -- (Marketwire) -- 03/22/13 -- As Canadians prepare
their 2012 personal income tax returns, BMO Nesbitt Burns encourages
them to review carefully the tax implications on income generated by
their investments, including adopting strategies on how to save on
investment taxes paid.
According to a BMO Nesbitt Burns study, many Canadians are not
familiar with the tax implications of earning investment income,
-- How capital gains are taxed (58 per cent)
-- How dividend income is taxed (63 per cent)
"It's important not only to think about how your investments will fit
with your financial goals, but also how they will affect your taxes,"
said John Waters, Vice President, Head of Tax & Estate Planning,
Wealth Planning Group, BMO Nesbitt Burns. "The taxation of investment
income can have an impact on net returns. However there are a variety
of tax-saving strategies that can help Canadians save money now and
down the road. Be sure to investigate the options and plan
BMO Nesbitt Burns offers the following strategies to save taxes on
investments and capital gains:
-- Offset capital gains with capital losses: If an investor realizes
capital losses in the same taxation year that a significant capital gain
is triggered, the tax liability on the capital gain can be reduced.
Therefore, it is important to review your portfolio to consider the sale
of certain investments with accrued losses to offset capital gains
realized earlier in the year, provided a sale makes sense from an
-- Donate appreciated securities: When you make a qualifying charitable
donation of publicly-traded securities, the capital gains tax that
usually applies to the sale of a security can be eliminated. Investors
will also receive a tax receipt for the fair market value of the
securities at the time of the donation.
-- Contribute to
an RRSP: Contributions to a Registered Retirement Savings
Plan (RRSP) are tax deductible, and the income earned in an RRSP is not
taxed until it is withdrawn. This means savings grow faster than those
held outside of an RRSP. Optimize your RRSP by maximizing your annual
contribution limit or contributing to a spousal RRSP.
-- Invest in a TFSA: The Tax-Free Savings Account (TFSA) is a tax-efficient
vehicle that combines the benefits of tax-sheltered savings with the
advantage of compounding, allowing your savings to grow.
-- Spot tax deductions: For some investors, the possibility of claiming
other tax deductions to offset increased income may lessen the tax
liability created by the realization of capital gains in a non-
registered portfolio. For example, the extra cash flow from the sale of
an investment could be directed towards a larger RRSP contribution,
especially if you have significant unused contribution room carried over
from prior years.
-- Consider a tax-deferred roll-over: Many corporate takeovers allow
disposing shareholders to exchange all or a portion of their shares for
shares of the acquiring corporation. This option generally provides
Canadian shareholders with the opportunity to defer tax on accrued gains
on the old shares by filing the necessary tax election forms prior to
the prescribed deadlines.
-- Defer a portion of the gains to next tax year: If proceeds of
disposition from a sale triggering a capital gain are not all receivable
in the year of the sale, it may be possible to defer a reasonable
portion of the gain from taxation until the year when the proceeds
-- Consider income splitting: Income splitting allows you to spread income
amongst family members who are taxed at a lower rate (subject to
possible attribution rules). Some valid income-splitting strategies
include: pension splitting between spouses or common law partners; an
interest-bearing loan to family members in a lower tax bracket; and
gifts to adult family members (such as a parent or adult child).
For more information on BMO Nesbitt Burns and investing, please
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Rachael McKay, Toronto
Valerie Doucet, Montreal
Laurie Grant, Vancouver
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